It is a common practice for individuals to rely on the proceeds from the sale of one house or real estate property (hereinafter a “First House”) as a major source of funding toward the purchase of another house or real estate property (hereinafter a “Second House”), and, to effect this strategy, make an offer on the Second House which is conditional on the sale of the First House. In a typical real estate transaction, this type of offer may be open for a fixed period of time, such as, for example, 90 days, or less, it being understood that a wide variety of different arrangements can be devised. In such a case, in the event that the First House is not sold within the fixed period of time, the vendor of the First House can either remove the condition and proceed with the purchase of the Second House despite not having sold the First House, or alternatively, not remove the condition and permit the offer to purchase the Second House expire.
Although a conditional offer may be better than no offer at all, nevertheless, there are drawbacks presented by such a conditional offer. For example, as the vendor of the Second House does not know, with certainty, that the First House will sell, and there is no assurance that the vendor of the First House will have the funds necessary to proceed with the purchase of the Second House, in the event that the conditional offer expires (the condition having not been removed by the vendor of the First House), the vendor of the Second House cannot proceed with the sale of the Second House, and must start the cycle again of seeking out another opportunity to sell the Second House.
Furthermore, the purchaser of the Second House does not know with certainty whether or not the Second House can be purchased, or whether or not the condition can be removed, in the event that the First House is not sold during the fixed period of time in which the conditional offer is open. While the purchaser of the Second House can, of course, remove the condition at any time, and possibly, with the aid of bridge financing, proceed with the purchase of the Second House, if the purchaser's First House does not sell quickly, the purchaser of the Second House faces the risk of potentially owning two properties (which typically would require the individual to make two sets of mortgage payments, insurance payments, taxes, maintenance and other expenses on both houses), and may have great difficulty or be unable to carry both houses, putting the purchaser at risk of having to sell one of the properties at a loss or otherwise making alternative arrangements for financing.
It is desirable to have access to protection against the uncertainties of the marketplace, particularly as it relates to relatively expensive items such as homes and real estate and the length of time that may be necessary to effect the sale of a particular property, and to be able to reduce, mitigate or substantially eliminate the risks associated with a single or multiple real estate transactions in a convenient, cost effective and simple manner.